(August 11, 2017) Musk’s genius is primarily in the subsidy-seeking realm. By 2015, U.S. governments alone had given his companies US$5 billion through direct grants, tax breaks, cut-rate loans, tax credits and rebates.
The fastest-growing industries over the last two decades have been fake industries, those that thrive despite having few customers willing to buy their products except at fire-sale prices. The fake industries all have the same angel investors — governments — and the same promoter touting their wares — again governments. These fake industries, the brainchild of subsidy entrepreneurs, also tend to be dazzlers, the better to wow their politician backers and the stock market speculators betting on cash flows of government subsidies.
Today’s fake-industry leader is Tesla, the electric car developed by subsidy entrepreneur Elon Musk, who also heads SolarCity and SpaceX, other government darlings. Musk’s genius is primarily in the subsidy-seeking realm — by 2015, U.S. governments alone had given his companies US$5 billion through direct grants, tax breaks, cut-rate loans, cashable environmental credits, tax credits and rebates to buyers of his products. Counting subsidies from Canada and Europe, the government bankroll could be double that. Counting indirect subsidies — such as electric-vehicle-friendly infrastructure — the subsidies soar ever higher.
Speculators who bet on Musk’s ability to continue to get government backing have been well rewarded — Tesla’s stock value has skyrocketed, so much so that its market valuation topped that of BMW this year. Tesla stock is now valued at US$801,000 per car sold in 2016, compared to $26,000 per BMW sold and $5,000 per GM car sold.
The fake industry leader is Tesla.
That inflated stock value rests entirely on government subsidies, as seen by what happened last year when Denmark decided to reduce its subsidies. In 2015, Tesla sold 2,738 cars in Denmark; in 2016, after the government said it would be phasing out subsidies, Tesla sold 176 cars, a drop of 94 per cent. Tesla’s car crash was even more pronounced in Hong Kong. After the government there cut its tax break on April 1, Tesla sales plunged from 2,939 in March to zero in April and five in May.
The Tesla, in effect, is a beautifully engineered toy for the conspicuous-consumption market, accessible to millionaires but beyond the reach of the commercial market. Neither it nor most other electric vehicles have any place in a competitive, free-market environment. As an indication of how economically injurious these playthings are to society on the whole, the U.K.’s National Grid estimated that Britain would need to increase its peak generating capacity by 50 per cent to meet the government’s plans for electric vehicles, the equivalent of building 10 new nuclear plants.
The driver of the electric-vehicle industry — government fixation on global warming — has spurred even larger fake industries, led by wind turbines and solar photovoltaic cells. Neither they nor the many other anti-carbon inventions such as carbon sequestration plants are in any business sense “real.” The global renewable-energy industry, having squandered trillions of dollars building economically unjustifiable infrastructure, represents the greatest loss of wealth in the history of commerce.
The Tesla, in effect, is a beautifully engineered toy for the conspicuous consumption market.
Fake industries have always been with us, but today’s scale is greater by at least an order of magnitude. The previous record holder for wasteful enterprise was the nuclear power industry, which even today, more than a half-century after its launch, still is not viable. Just last month, two heavily subsidized reactors nearly half-built in South Carolina were abandoned after US$9 billion had been spent on their construction, on the realization they would never be able to produce power competitively. Ontario is still paying for the demise of its nuclear industry a quarter-century ago, which bankrupted Ontario Hydro and cost the province its Triple A credit rating.
Fake industries prey on government’s weakness, like Charlie Brown with that football, to never let constant failure stop it from trying to pick winners. An Elon Musk predecessor, Malcolm Bricklin, in the 1970s convinced New Brunswick’s premier to back a sports car with gull-winged doors for export to the U.S. It went bankrupt after producing 2,900 cars. In the 1980s, Philip Sprung, a Calgary subsidy entrepreneur, convinced Newfoundland’s premier to grow cucumbers in a greenhouse for export to the U.S. Two years and $22 million later, it too went bankrupt. In the 1990s, Ballard Power Systems convinced governments to back hydrogen fuel-cell technology. Its stock, which topped US$120 per share in the year 2000 amid hype that it would revolutionize transportation, is now under $3.
Subsidy entrepreneurs like the Musks of the world — often self-deluded true believers — should be distinguished from the Bernie Madoffs, who are fakes within real industries, and who prey primarily and illegally on private investors. The Musks are fakes in fake industries who prey primarily on taxpayers, a time-honoured practice that remains legal.